Homeowners approaching the end of their fixed-rate mortgage deals could face significantly higher monthly payments if they fail to secure a new deal and instead revert to their lender’s standard variable rate (SVR), new research shows.
Analysis by Alexander Hall, the mortgage arm of estate agency Foxtons, highlights the financial impact of inaction for borrowers whose 2-year fixed terms are expiring.
In a climate of elevated interest rates, the cost of reverting to an SVR is starkly higher than the cost of arranging a new fixed-rate deal.
In 2023, the average homebuyer would have secured a loan of £217,502 – based on a 15% deposit on a typical UK property priced at £255,885. With an average 2-year fixed rate of 4.98% at 85% loan-to-value (LTV), monthly repayments would have stood at £1,269.
MONTHLY SAVING
As that fixed term ends, the outstanding mortgage would now be £208,277. With current 2-year fixed rates at 4.74%, borrowers securing a new deal would see their repayments fall slightly to £1,241, generating a modest monthly saving of £28.33, or £679.92 over the next two years.
FINANCIAL RISKS
However, homeowners who fail to renegotiate and instead move onto their lender’s SVR – currently averaging 7.23% – would face a significant increase in costs.
On the same outstanding balance of £208,277, repayments would rise to £1,550 per month, representing an increase of £281.29 each month compared to the original fixed rate.
Over the course of two years, this difference would accumulate to an additional £6,750.96 in repayments – a clear indication of the financial risk of passivity when mortgage terms expire.
Stephanie Daley, Director of Partnerships at mortgage advisor, Alexander Hall, says: “Nobody wants to pay more than they need to when it comes to the monthly cost of their mortgage, but that’s exactly what could happen if you allow your mortgage to drift onto a standard variable rate.”
